On the Death of a Partner, which account is debited for his/her share of profit for the intervening period, i.e., the period from date of the last balance sheet till the date of the partner's death:
On the Death of a Partner, which account is debited for his/her share of profit for the intervening period, i.e., the period from date of the last balance sheet till the date of the partner's death:
Solution
Death of a Partner - Intervening Period Profit
When a partner dies during the accounting year (between two balance sheet dates), the deceased partner is entitled to their share of profit for the intervening period - from the last balance sheet date till the date of death.
Why Profit and Loss Suspense Account is Debited
At the time of the partner's death, the final accounts for the year have not yet been prepared. The actual profit is unknown and needs to be estimated.
Profit and Loss Suspense Account is a temporary account created to record this estimated profit for the intervening period.
Journal Entry
The entry recorded is:
| Particulars | Debit () | Credit () |
|---|---|---|
| Profit and Loss Suspense A/c | Dr. | xxx |
| To Deceased Partner's Capital A/c | xxx | |
| (Being deceased partner's share of profit for intervening period) |
Understanding Each Account's Role
- Profit and Loss Suspense A/c (Debited): Represents the estimated profit being withdrawn/distributed before final accounts are ready
- Deceased Partner's Capital A/c (Credited): The deceased partner's entitlement increases, as they have earned profit till the date of death
When the final accounts are eventually prepared, the Profit and Loss Suspense Account will be closed by transferring it to the actual Profit and Loss Account.
Correct Answer: Option 2 - Profit and Loss Suspense Account
Related questions:
2025: 24 May Shift 1
2025: 24 May Shift 1